#IT18 Whom to blame for high software engineering salaries?

#IT, #Economy

This article points out to a rarely considered reason that drives high-tech salaries up: corporate greed.

This is a basic premise of Ayn Rand capitalism theory that individual greed (self-interest) produces a common good. How is self-interest of large corporations expressed today? One of the main forms is the pursuit of technology that allows to create products that can do more and that are easier to use. And therefore, to get ahead of the competition and get better profits. Makes sense, right? Right. But now let’s see the other side of it.

Reminder about IQ

Let’s refresh some background information that will be very useful for our further conversation on the topic. To be factual and not emotional we will need metrics. The metric we will use is IQ. It is well known that IQ is not the best metric to predict people’s success, however we are not talking about success, and for the matter, we will discuss, IQ is quite adequate tool.

So, clearly you know that by IQ (Intelligence Quotient) people are distributed by a bell curve. Most people in the center around 100, and less and less people to the right and to the left:

Some people even know how cumulative IQ graph looks like, that is how many people are bellow some IQ:

Notice “below”, this is very important. This graph says that there is nobody below 0 and nearly everyone is below 200.

But for us the important picture is the reverse graph turned 90 degrees: how many people are above certain IQ:

From this graph we can see that everyone is above 0, nearly no one is above 150 and around 56% are on or above 100. This is a very important graph. Why? Let’s get to it.

Production requirements dynamics

Would you agree that any tool requires some IQ to be used? Say, hoe or shovel probably requires as little as 70 or even 60. The only thing you need to know is to not hit your own foot with it, may be a little more.

Based on anecdotal and common sense evidence, you need 100 to become an automechanic (graduate from High School, learns some tools and car internals...). You will need around 115 to graduate from a college and get a chance to get into a graduate school. College professors of Physics and Mathematics are generally considered at 130+1. And FAANG (like Facebook or Google) seems to require 140.

Availability

What does it mean for us? It means that ~100% of people were fit to be ancient slaves or medieval farmers. So far, so good. The industry is ok. There is no shortage of slaves and peasants. Or food.

Necromancer: Here are your workers.

Foreman: I've never worked with zombies. Do they have enough brains to work?

Necromancer: Just try. They'll follow your orders.

Foreman: Hey. Dead meat, start working!

Half an hour later.

Foreman: You know, they are not that different from my previous ones.

At IQ=100 about 56% of people can become auto mechanics. That’s a bit less, but still a lot of people. There is no shortage. So, your car is more or less safe.

And less than 0.6% of the population can become FAANG engineers.

Now, it’s time for Economics 101. Reread the chapter “Supply and Demand”. The labor is something to sell. How free market determines the price? Based on supply and demand. So, let’s get some numbers.

According to Statista (https://www.statista.com/statistics/997040/world-population-by-continent-1950-2020/) there are 595 million people in North America and 745 million people in Europe. The places which are the main consumers of the software engineering talent. It means that we have about 3.5 million people in North America and 4.5 million people in Europe to do a good software engineering job. Even if Europe number don’t include Russia with her 150 million population, we only get 0.9 million people more.

So, altogether, we've got about 3.5+4.5+0.9 ≈ 9 million people who can do a good software engineering job.

How many software engineers do we need? Again, according to Statista, here are about 27 millions of software engineers in the World.

Supply, demand... Again, breathe deeply, supply, demand... supply, demand. 9 million people are able to do the job, 27 million jobs. Supply, demand...

What if we import developers from China and India? There are around 8 billion people in the World today, including China, India, Latin America and Africa. And 8 billion * 0.6% ≈ 48 million people. That looks much better, doesn't it?

Think again. We are talking about the smartest people in the world. So... what do you think, how many of them will pick stress, burnout, scoliosis, annual unpleasant performance reviews (those cannot be different, but that’s a subject for another article) just to be treated like rubbish and finally laid off based on the letter from a head of a fund that is located in the City of London and owns less than 1% of the company shares?2 And how many of them instead will go into Law, Medicine, or exec-level management including hedge funds?

You see? 48 million is just a drop in a sea of what our civilization needs.

Supply, demand, supply, demand...

Conclusion

Is there a solution to this? Of course, there is always a solution, and actually more than one solution:

1. C-level people should stop whining about someone inferior to them getting too much money. After all, it’s still rarely comparable to what CEOs are getting. After all, above mentioned CEO has around $7.5 billions3 (https://www.businessinsider.com/google-layoffs-cut-jobs-excessive-pay-investor-alphabet-2023-1?r=US&IR=T), and unless you count Bill Gates, Mark Zuckerberg and Sergey Brin, I don’t think you can find a software engineer with similar wealth.
2. We can cut out technical progress and reduce ourselves to early capitalism technology. The problem will disappear instantly. The Soviet Union seems to have picked this solution. Want to copy their experience?
3. Fix our culture and education system. IQ is not defined by genes, at least mostly, IQ is something that may be developed and improved. This is well demonstrated by China. But it does not look like it happens. Our education seems to dumb people, not make them smarter.

Three ways. The choices. Tough.

[1] Meritocracy, Cognitive Ability, and the Sources of Occupational Success by Robert M. Hauser, Department of Sociology, Center for Demography and Ecology, The University of Wisconsin-Madison, August 17, 2002; The American Sociological Association, Chicago, Illinois, August 2002.

[2] The letter to Sundar Pichai from Christopher Hohn, TCI Fund Management Limited, 7 Clifford Street, London W15 2FT, https://www.tcifund.com/files/corporateengageement/alphabet/20th%20January%202023.pdf

[3] A major Alphabet investor said the company should cut even more jobs and address 'excessive' pay in the wake of mass layoffs, Beatrice Nolan Jan 25, 2023 https://www.businessinsider.com/google-layoffs-cut-jobs-excessive-pay-investor-alphabet-2023-1?r=US&IR=T